Dooley: Planned charitable giving can benefit donors, organizations

Nov. 26, 2013

Though many affluent families and individuals give generously to charity, the vast majority of them don’t give in a planned way, and that hurts both the donors and ultimately the charities, say charitable giving experts.

The majority of affluent households employ a charitable-giving strategy often referred to as “checkbook philanthropy.” This is not a strategy at all, but the unplanned, often haphazard, giving of small amounts to a variety of charities, commonly in cash, often in reaction to solicitations with the best pitches. Only about a quarter of affluent households make planned gifts, despite the fact that the vast majority of those who don’t make planned gifts express interest in doing so.

What exactly is planned giving? Why are so few affluent households making planned gifts? What are the benefits?

Planned giving is an organized approach to giving that evaluates the donor’s personal values, selects charitable organizations and gift-giving vehicles that best reflect those values, and maximizes the financial and tax benefits of the gifts.

So why don’t more affluent households plan their gifting? There are several reasons. Planned giving takes time, many don’t know enough about the details of benefits of planned giving, many perceive planned giving as too complex and too expensive, and some worry about jeopardizing their own financial situation through giving. Planned giving addresses these concerns, while providing some of the following benefits.

Influence: The nature of charitable giving has been changing in recent years, particularly as the front end of the baby boom generation reaches the point where it can afford to make sizable gifts. First, many of today’s donors are less inclined to simply pass on most of their wealth to their children, and more inclined to pass on a greater portion to charitable organizations. Warren Buffet and Bill Gates are good examples of this. But you don’t have to be them. The majority of the work we do in this area is on estates worth between $3 million and $20 million.

Donors, particularly the self-made affluent, want greater influence over how their gifts are spent. Instead of simply writing a check to an omnibus charity that makes the distribution decisions, they want to be actively involved in seeing that their money targets those charities they care about. That’s why those who plan their donations often establish various foundations or charitable remainder trusts, or, my favorite, donor-advised funds.

Efficient use of money: Planned giving makes use of techniques that maximize the dollar amount that ultimately benefits the charity. For example, the giving of stock avoids the donor’s payment of capital gains taxes and thus leaves more to the charity. But sometimes it’s not possible to gift stock directly to smaller charities, so the donor must employ other charitable vehicles to accomplish such a gift. It may make more sense to give during one’s lifetime instead of waiting until death. Or you might be able to leave more to a charity over the long run by deciding on a five percent payout rate from a charitable remainder trust rather than a 10 percent payout rate.

Tax benefits: Although many affluent people make donations out of a genuine desire to give, tax benefits play an important role. For one thing, the tax benefits make it financially feasible for the donor to make a gift. Charitable remainder trusts and gift annuities, for example, provide the donor with lifetime income while ultimately benefiting the charity. Furthermore, as exemplified by the gifting of appreciated property, the tax savings benefit the charity as well.

Teach your children: Planned giving involving ongoing influence such as through donor-advised funds or foundations can be an excellent way to introduce the donor’s children about giving. They can help decide who is to receive gifts, and in some cases can continue that role after the donor’s death providing a legacy long into the future.

Provide a legacy: Some donors wish to leave an ongoing philanthropic legacy, something that generally can’t be done with standard checkbook giving.

The options for making planned gifts are many. They include bequests made through wills, charitable remainder trusts, charitable lead trusts, private and community foundations, charitable annuities, donor-advised funds and even life insurance. Each option presents advantages and disadvantages, so you will want to review those options with your financial planner or other charitable expert to see which ones best fit your values and personal financial situation.

Happy planning.

Timothy J. Dooley, CFP, is president of Comprehensive Retirement Resources Inc., 201 N. Draper Road, McHenry. He specializes in retirement and estate planning and offers securities through Raymond James Financial Services Inc. Reach him at 815-578-4217.